For merit-based societies, look to Europe

‘Over the past three years, Barack Obama has been replacing our merit-based society with an Entitlement Society," Mitt Romney wrote recently in USA Today. The coming election, Romney told Wall Street Journal editors, will be "a very simple choice" between Obama's "European social democratic" vision and "a merit-based opportunity society — an American-style society — where people earn their rewards based on their education, their work, their willingness to take risks and their dreams."

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Romney's assertions are the centerpiece of his, and his party's, critique not just of Obama but of American liberalism generally. But they fail to explain how and why the American economy has declined the past few decades — in good part because they betray no awareness that Europe's social democracies now fit the description of "merit-based opportunity societies" much more than ours does.

The best way to measure a nation's merit-based status is to look at its intergenerational economic mobility: Do children move up and down the economic ladder based on their own abilities, or does their economic standing simply replicate their parents'? Sadly, as the American middle class has thinned out over recent decades, the idea of America as the land of opportunity has become a farce. As a paper by Julia Isaacs of the Brookings Institution has shown, sons' earnings approximate those of their fathers about three times more frequently in the United States than they do in Denmark, Norway and Finland. The European social democracies — where taxes, entitlements and the rate of unionization greatly exceed America's — are demonstrably more merit-based than the United States. Unemployment rates in Northern European nations — as of October, Germany's unemployment rate was 6.5 percent; the Netherlands, 4.8 percent; Sweden 7.4 percent — are substantially lower than ours (9 percent then). Denmark, Sweden, Finland and Germany in particular have sizable trade surpluses, while the United States runs the largest trade deficits in history.

If entitlements and social democracy were anywhere near the impediments to enterprise that Romney claims, Germany would hardly be the most successful economy in the advanced industrial world, with those of Scandinavia close behind. The secrets of social democracy's successes are in plain view. In Scandinavia, government commitment to worker retraining and job relocation mean that there is no major political pressure to keep failing firms in business; it's a policy that favors innovative start-ups. And German workers' willingness to sacrifice in order to stay competitive is surely increased by the fact that their CEOs on average make just 11 times as much as their workers. In the United States, chief executives make roughly 200 to 300 times as much as their average employees' salary.

Which brings us back to Romney's characterization of our country as a merit-based society and his failure to notice the huge changes in economic rewards over the past three decades. During the 30 years after World War II, the average American family's income doubled, while chief executives' income was restrained, increasing by less than 1 percent annually. Beginning around 1980, however, the incomes of most Americans began to flatten or decline, while financiers and corporate leaders claimed more of the nation's income for themselves.

Corporate leaders have been rewarded with huge payouts even when their corporation's performance has been disappointing. Conversely, millions of Americans have maintained or upgraded their skills yet seen their jobs shipped abroad or downgraded. Is this a description of a merit-based society?

Romney and his Bain Capital buddies may view their wealth as the just rewards endemic to success. But why are so few Americans sharing in those rewards today while so many Americans shared in them 40 years ago? Are most Americans no longer meritorious? Or has our country ceased to reward any but the rich and powerful?